German business confidence falls unexpectedly

25th August 2005, Comments 0 comments

25 August 2005, MUNICH - German business confidence fell unexpectedly ahead of the nation's election next month, according to the closely watched ifo survey released Thursday, as surging oil prices raised concerns about growth in Europe's biggest economy.

25 August 2005

MUNICH - German business confidence fell unexpectedly ahead of the nation's election next month, according to the closely watched ifo survey released Thursday, as surging oil prices raised concerns about growth in Europe's biggest economy.

Drawn up by the Munich-based ifo economic institute, the monthly index of 7,000 executives slipped back to 94.6 points in August from 95 in July with worries about the current economic situation cancelling out expectations of a more favourable economic outlook six months down the track.

But as a result of expectations of a more favourable economic climate, ifo chief Hans-Werner Sinn said he believed that Germany remained on the path to a pickup later this year.

"On the whole, the latest survey results do not rule out a moderate improvement in the coming months", he said, noting that the index was still higher than it was in March to June of this year.

The release of the ifo business climate index comes as the campaign for Germany's mid-September election enters a crucial phase.

The fall in August bought to an end two convincing monthly increases in the index, which is considered to be one of Europe's key economic indicators. Analysts had expected the index to edge up to 95.2 this month.

Despite economists expecting the German economy to gain momentum in the coming months, Morgan Stanley economist Elga Bartsch said the decline in the ifo index during August underscored that there were still risks to the recovery.

The slide in the ifo index during August is even more surprising as its release follows a big jump in another key German economic sentiment survey published earlier this week.

Often seen as a curtain raiser to the ifo report, the ZEW German investor confidence index surged to a 17-month high in August on the back of a fall in the euro, a recent strong rise in shares and signs of stronger global growth.

But underscoring worries about the impact of soaring oil prices on company costs and profits as well as private consumption, the release of the ifo survey came just one day after the price of crude oil hitting a new record high of USD 68 a barrel.

While the ifo report showed German industry leaders assessment of the current economic situation falling to 93.8 in August from 94.9 in July, the index's gauge measuring expectations rose to a six-month high of 95.4 from 95.1 in July.

In particular, this was the case in Germany's important manufacturing sector, where the business climate index fell slightly. This followed a weaker assessment of the current situation offsetting improved business expectations.

Significantly, with the euro having dropped about 10 per cent against the dollar since the start of the year, executives in the manufacturing industry remained optimistic about the outlook for exports.

After climbing to a record high of USD 1.36 at the end of December, the euro has more recently been hovering around USD 1.23 in European trading.

Germany's hard-pressed construction industry also turned in a positive performance in the ifo index with rises in both the gauges measuring business expectations and the current climate.

But with German shoppers already reluctant to spend because of the country's high 11.5 per cent unemployment rate, Thursday's ifo report highlights the new risks to private consumption posed by escalating oil prices. In both retailing and wholesaling, the ifo business climate index worsened.

The business climate in eastern Germany worsened somewhat more than in the country as a whole, the ifo institute said.

DPA

Subject: German news

0 Comments To This Article